China Equity Strategy: Stricter capital rules good for A-share market (HSBC)
The HSBC report believes that the stricter capital rules introduced by China will be beneficial to the A-share market.
The HSBC report believes that the stricter capital rules introduced by China will be beneficial to the A-share market. Report data shows that during the period of capital outflow restrictions, southbound funds from the Shanghai-Shenzhen-Hong Kong Stock Connect still maintained a net inflow. Since 2016, cumulative southbound net purchases have reached 3.8 trillion yuan. The logic is that the policy of restricting capital outflow will prompt the "domestic capital" originally planned to go overseas to return and allocate more of it in the relatively safe and attractive A-share market. The market may not have fully paid attention to the support of this "closed-loop effect" to the liquidity of A-shares, which will become an important source of incremental funds for the A-share market. One sentence conclusion: Tighter capital controls will promote the return of domestic capital and provide structural and sustainable financial support for the A-share market. Good/bad: Good for the overall A-share market, especially large-cap blue chip stocks. The market's analysis of southbound funds mostly focuses on Hong Kong stocks, while ignoring its indirect support for A-shares. Catalysts: 1) Comparative analysis of net inflow data of southbound and northbound funds; 2) Expectations of stable RMB exchange rate; 3) The introduction of new capital control policies.